2020 Annual Report
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Ben Moon 2020 ANNUALREPORT CLARUS CORPORATION 2020 Annual Report ANNUAL MEETING The Annual Meeting of Stockholders will be held on Wednesday, June 2, 2021 at 10:00 a.m. Eastern Daylight Savings Time in a virtual-only meeting format via live webcast. Detailed information about the meeting and instructions on how to participate in this year’s virtual meeting are contained in the Notice of Annual Meeting and Proxy Statement sent with a copy of this Annual Report. CORPORATE INFORMATION Board of Directors Warren B. Kanders Executive Chairman Michael A. Henning Financial Consultant Donald L. House Financial Consultant Nicholas Sokolow Partner Lebow & Sokolow, LLP Management John C. Walbrecht President Aaron J. Kuehne Executive Vice President Chief Financial Officer Secretary and Treasurer STOCKHOLDER INFORMATION Headquarters Clarus Corporation 2084 East 3900 South Salt Lake City, UT 84124 (801) 278-5552 Investor Relations Contact Gateway Investor Relations Cody Slach (949) 574-3860 [email protected] Securities Listing The Company’s common stock is listed on the NASDAQ Global Select Market under the symbol CLAR. Registrar and Transfer Agent American Stock Transfer & Trust Co. New York, NY Independent Accountants Deloitte & Touche LLP Salt Lake City, UT Legal Counsel Kane Kessler, P.C. New York, NY DEAR FELLOW CLARUS SHAREHOLDERS: Our performance in 2020 reflects the resilience of our In addition, we track return on invested capital (ROIC) to measure “super-fan” brand strategy. our performance and to hold ourselves accountable for how we deploy cash. ROIC is calculated by comparing Adjusted EBITDA One year ago, the World Health Organization declared COVID-19 for each of the businesses to their respective acquisition prices, a pandemic and governments world-wide implemented safety plus or minus any additional capital required or generated on a measures including travel restrictions and business lockdowns. cumulative basis. We believe this metric aligns profitability targets In response, many of our retail partners shut their doors and our within the entire organization and represents our true invested employees adapted to new working conditions. With no idea of capital in our different businesses. In 2020, our ROIC exceeded what was to come or how long this would last, we made a com- 15%, punctuating our ability to identify businesses that mitment to the well-being and health of our employees, the pres- exhibit superior returns and manage them effectively amidst ervation of brand equity, and maximizing liquidity. I am extremely broader market turmoil. proud of how we addressed these three focus areas during 2020. From a capital allocation perspective, we paid $1.5 million in While the pandemic has had an immeasurable impact on the cash dividends and $1.5 million in stock dividends. We tempo- way we all live and interact, it seems clear that people’s desire to rarily suspended our share repurchase program as a proactive get outdoors and participate in a variety of leisure activities with measure in response to the COVID-19 pandemic, which we have greater frequency is here to stay. Whether from people migrat- since reinstated, and we have $10.8 million remaining on our ing out of major cities, spending a greater share of discretionary $30.0 million buy-back authorization. For 2021, we expect to income on consumer activities (rather than service-oriented travel, continue paying cash dividends and we anticipate being opportu- dining, etc.), or a renewed focus on individual wellness, Clarus’s nistic in resuming our buy-back program. leading brand portfolio stands to benefit from this “new normal.” Through the pandemic we stuck to our “innovate and accelerate” EXECUTING ON OUR GOALS growth strategy, knowing that we had an opportunity to continue developing best-in-class products and enhance brand aware- OUR GOALS STRONG 2020 RESULTS ness across the portfolio. Within our Black Diamond® brand we 250 125+ brought 250 new products to market and our innovations were 1 Accelerate Brand Growth recognized through more than 125 product awards received New Products Product Awards during the year, a 30%+ lift from 2019. In our bullet business, we drove record growth through new product initiatives and invest- ments to increase daily capacity, complemented by our acquisi- 3% ~$24 2 Improve Profitability Y/Y Increase in Adj. Million in Free Cash tion of Barnes® in October 2020. We believe that this acquisition Net Income Before Flow Generated has already proven to be successful, and our team looks forward Non-Cash Items (~$5M in 2019) to leading Barnes to its full potential. >15% 13% After the retail environment rapidly deteriorated in March as the Deploy Capital to Drive 3 Share Price Shareholder Returns ROIC scope of the pandemic became clear, our performance steadily Appreciation improved through the remainder of the year and we ended 2020 just 2% shy of our strong 2019 results. The dynamic environment necessitated prioritization of our direct sales channels, while I am proud of our continued progression and the strides we also balancing our continued commitment to the needs of our made in 2020 to further deliver substantial value to share- wholesale partners. We invested in improving our e-commerce holders. The challenges of 2020 were unforeseen, but our presence and experience, resulting in a 14% increase in our DTC team adapted and found new ways to push our super-fan business. While our wholesale business was resilient with 3% brand strategy forward. growth, our distributor business was down 36%, partly due to Brand Highlights our transition from a distributor model and into a brand-direct strategy in our U.K. and Spain markets. By brand, Black Dia- Black Diamond – Our leading climbing, mountain, and snow mond sales decreased 14% while Sierra was up 57% from the sports equipment brand with six decades of heritage. prior year. Our Black Diamond strategy focuses on market leadership The pandemic also brought on unforeseen supply challenges for through new product introductions across our Climb, Moun- raw materials and components, as well as logistics challenges tain, and Snow categories, which include our customer’s core associated with the geographic imbalance of container availabil- activities like climbing, alpinism, mountaineering, trail running, ity and port congestion. We responded to these challenges and backcountry skiing and snowboarding. We continued to build leveraged our strong relationships with our vendors and key retail brand momentum in 2020 with strong results across each of our partners to maintain consistent in-stock positions and outperform product categories and channels despite market disruptions. the market in 2020. We did not aggressively discount products at the onset of the Our gross margin and adjusted EBITDA performance tell nearly pandemic and we believe that this has strengthened our long- the same story. While these metrics fell slightly for the full year, term competitive position by preserving brand equity and the each improved sequentially from the second to fourth quarters, value proposition our products represent. In addition, we con- demonstrating the strength of our brands, our ability to fulfill tinued to increase market share during 2020 by improving the demand, and the execution of our disciplined pricing strategy. customer experience and raising brand awareness by focusing As challenging as those early days were, we dealt with them on digital advertising. effectively and ended the year on a positive note with a 56% year over year increase in fourth quarter adjusted EBITDA. In our Climb category, we continually ranked as one of the top equipment brands. In January 2021, we were given the distinc- Free cash flow increased more than 4x to $24.0 million com- tion by SNEWS’ 2020 Retailer Survey of being the #1 brand for pared to $5.4 million in 2019. I am especially proud of this met- hardware and harnesses, #2 for climbing ropes and #3 for climb- ric, as it highlights the discipline and ability of our management ing shoes, which we only introduced in 2018. We continued to team to deliver strong financial results in the face of significant show innovation through the release of our new engineered chalk, adversity. the redesign of our entire carabiner and quickdraw collection, material innovation and broadening our collection to match our equipment’s use cases. Sierra and Barnes – Our leading, specialty premium bullet and ammunition platform. With strong domestic demand ahead of and following the 2020 U.S. election, and increased par- ticipation in outdoor hunting and indoor shooting ranges, we saw great results in our bullet and ammunition product lines. As mentioned earlier, Sierra sales were up 57% for the year. The market momen- tum and our continued investment in brand awareness helped support our recently released ammunition products, including GameChanger®, Prairie Enemy®, Sports Master® and Outdoor Master®. We acquired Sierra in 2017 with strong confidence that we could optimize and grow the 70-plus year-old leading sport bullet manufacturer. Our performance exhibits our ability to execute on this plan, as we build on our vision of being a leader in the premium bullet and ammunition market. the launching of new Z4™ cams, the Vision™ helmet, and the Our success with Sierra allowed us to be opportunistic in acquir- award-winning Air-Net™ harness. We also continued the evolu- ing Barnes, another super-fan brand, manufacturing some of tion of our performance footwear initiative, expanding our offering the world’s